Have you heard of D.B. Cooper?
In 1971 the guy hijacked a plane, demanded a HUGE sum of money ($200,000 grand!), got the ransom paid and once he had the money in hand the plane he’d hijacked took off and somewhere between Seattle and Portland ol’ Coop strapped on a parachute and flew the coop, never to been seen or heard from again.
This case is the only unsolved hijacking in U.S. history. So why bring him up? Two reasons really, first because I think it’s a fascinating story and second, it’s a great example of the value of money. $200,000 in 1971 is the equivalent of over $1.1 million today.1. How’s that possible?
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Cash Loses Value Over Time
The future value of money is a rule that says “the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.” 2
What that’s saying is that a dollar today is worth more than a dollar tomorrow. Or put another way, if you can buy something for a dollar today, tomorrow it will take you that same $1 plus a little something extra. That’s because cash loses value over time.
The Future Value of a Dollar
They probably bought their house in 1940 for a whopping $3,0003, which was a lot of money at the time. What if those same grandparents also scrimped and saved their whole lives and stuck their savings in an old coffee can and hid that can in the attic of their $3,000 house. In total they’d have $6,000 in assets: $3,000 in cash, and $3,000 in real estate.
70 years later you come along and that exact same house is worth a hell of a lot more than $3,000, right? Nice investment, Gramps!
But what about that nest egg hidden in the tin can up in the attic? It’s still worth $3,000.
Use Today’s Cash to Buy Tomorrow’s Assets
The problem is that back in the day that three grand was A LOT of money. Huge money, and it went a long way.
It was once enough money to buy an entire house, but today it probably wouldn’t even pay off your credit card bill. That’s because cash loses value over time, meaning a dollar today is worth more than a dollar tomorrow.
I plan on doing a future post about where & when to invest and how your money really isn’t safe sitting in your mattress, or tin can, or even in a savings account, but for now just open up an account with Vanguard and drop your money into an index fund. Probably VTSMX.
Until I get around to writing up my own post, you should read The Simple Path to Wealth: Your road map to financial independence and a rich, free life. This book is a game changer if you don’t know much about investing and I can’t recommend it to you enough.
The thought of finding a bunch of money buried in the back yard seems exciting, but it’s kind of sad when you think about how much value that money once had vs. what its buying power is today.
1. D.B. Cooper: https://en.wikipedia.org/wiki/D._B._Cooper
2. Future Value of Money: http://www.investopedia.com/calculator/fvcal.aspx
3. Money and Inflation 1940’s: http://www.thepeoplehistory.com/1940s.html